Mary C. Bennett (OECD Centre for Tax Policy and Administration) has published The David R. Tillinghast Lecture: Nondiscrimination in International Tax Law: A Concept in Search of a Principle, 59 Tax L. Rev. 439 (2006). Here is the Conclusion:
Despite their appearance in thousands of bilateral tax treaties over the past several decades, nondiscrimination articles remain a fairly unexplored, largely incoherent set of rules. They are beginning to attract greater attention, in large part because of the explosion of tax cases in the ECJ under the somewhat similar nondiscrimination provisions of the EC Treaty. As governments around the world enter a period of greater strains on revenue, their temptation to dip more heavily into the pockets of foreign taxpayers than domestic taxpayers likely will spawn a series of new tax provisions that raise nondiscrimination issues. So the time is certainly right to try to make more sense of the nondiscrimination provisions.
A beginning step in that direction is simply to acknowledge what the provisions do and do not try to do in their current form. As currently designed, they focus on a limited range of discriminatory treatment against inbound foreign taxpayers who participate in one way or another in the economic life of a host country. The tax treaties’ nondiscrimination provisions do not address discrimination against outbound investment by domestic taxpayers; that task is left to the double-taxation-relief article. They also do not address discrimination for or against domestic or foreign production, without regard to the identity of the taxpayer; that task is left to trade agreements.
Unlike the EC Treaty’s four freedoms, the nondiscrimination articles of tax treaties have no overarching rationale. It is difficult to explain their design in terms of the basic goals of the treaties generally, such as double taxation relief, or in terms of broader goals of eliminating barriers to cross-border trade and investment.
Even within their limited scope, they give rise to many basic issues of principle that remain unresolved. Some of these issues are coming into sharp focus because of the ECJ’s manner of addressing them in cases decided there, and one gets the distinct impression that some of the ECJ’s vigorous embrace of strong nondiscrimination principles under the EC Treaty is rubbing off on European national court judges who are being called upon to decide tax treaty nondiscrimination cases. If there is going to be any chance of avoiding strong disagreements or misunderstandings between those countries and their bilateral tax treaty partners who view the nondiscrimination provisions as less robust (including the United States), these issues of principle will have to be candidly discussed and resolved.
This Article has tried to identify a handful of the most basic of those issues of principle, such as: (1) whether the nondiscrimination articles outlaw covert as well as overt discrimination; (2) how broadly or narrowly one should draw the parameters in identifying appropriate objects of comparison, and how that exercise fits in with countries’ desires to defend their domestic tax rules as necessary to protect the cohesion of their tax systems; (3) whether and to what extent the foreign tax treatment of particular transactions is or should be relevant to the question of whether a country is discriminating unlawfully; (4) whether the presence of discrimination should be tested at the level of the individual taxpayer or the protected class as a whole; and (5) to what extent the ECJ’s concept of proportionality in allowable discrimination should apply to tax treaty nondiscrimination provisions. Some of these issues may be easier to resolve than others, and countries undoubtedly will want to feel their way carefully towards the resolution of some while keeping an eye on the ECJ and other case law developments to see what the implications of their decisions may be. So the simple message is, the search goes on.
